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TMI Blog2019 (6) TMI 1635X X X X Extracts X X X X X X X X Extracts X X X X ..... ,50,000/- as made by the Learned CIT(A) which is not permissible and therefore, bad in law. Thus the same is liable to be quashed. Hence, we delete such addition made by the Learned CIT(A). The assessee s appeal is thus allowed. Disallowance of interest @12% - Interest free advances to three parties on which no interest was charged - HELD THAT:- As relying on assessee's own [ 2018 (12) TMI 1679 - ITAT AHMEDABAD ] case we find no infirmity in the order impugned passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeals fails and accordingly dismissed. We find no infirmity in the order impugned passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeals fails and accordingly dismissed. Deduction u/s 80IA on a much higher amount than to earlier years - right of amalgamating company to claim deduction - HELD THAT:- As decided in own case [ 2018 (12) TMI 1679 - ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income on 29.11.2013 through electronic media declaring total income at ₹ 8,22,04,010/- after claiming deduction of ₹ 6,15,58,478/- u/s 80IA of the Act, which was processed u/s 143(1) of the Act. Upon scrutiny notice dated 04.09.2014 u/s 143(2) was served followed by a further notice dated 27.05.2015 u/s 142(1) calling for preliminary details and ultimately notice u/s 142(1) dated 11.06.2015 and 03.08.2015 along with the detailed questionnaire was issued upon the assessee. 3. Ground No.1: During the course of assessment proceeding, it was found upon verification of the balance sheet that the assessee company had made huge investment in shares, the income from which is exempt from tax. The assessee has earned ₹ 1,18,62,026/- as dividend income in the year under consideration. It also appears that the assessee has claimed interest payments to the loans and incurred other expenses. However, the assessee has not deducted such interest payment and expenses relating to the investment in shares for earning interest. According to the Learned AO, the expenditure relatable to investment in shares and securities is required to be disallowed u/s 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned CIT(A) in deleting the addition of interest of ₹ 26,40,992/- as disallowed u/s 14A is justifiable. So far as the administrative expenditure is concerned, he relied upon the judgment passed by the Co-ordinate Bench in the case of Chudgar Ranchodial Jethalal Trade Pvt. Ltd. in ITA No.245/Ahd/2013, wherein relying upon the judgment passed by the Delhi High Court in the case of Joint Investment Pvt. Ltd.-vs-CIT in ITA No.117 of 2015 that the window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . and GMM PFAUDLER Ltd.- vs-JCIT passed by this Co-ordinate Bench and by Gujarat High Court in the case of PCIT-vs-Sintex Industries Ltd. reported in [2017] 82 taxmann.com 71 (Gujarat) where it was held that when the assessee is having its own surplus fund against which minor investment was made, no question of making any disallowance of expenditure in respect of interest and administrative expenses u/s 14A arose and, therefore, there was no question of any estimation of expenditure in respect of interest and administrative expenses under rule 8D. It was further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and securities income from which is exempt from tax. Equally, it is also a fact that the assesses has taken unsecured loan and on which it is paying large sum of money as interest The motive of the assessee in investing in shares and securities is amply clear that it should earn dividend income from which is exempt from tax. The assessee also failed to substantiate with evidence for its claim that it has not incurred any expenditure in the investment activity. As stated above, the assessee has made investment in shares and securities only for the purpose of earning dividend. iii. It is pertinent to note here that a similar issue was before the Hon'ble Bombay High Court in the Case Godrej Boyce Mfg. Co. Ltd. Mumbai vs. DCIT and similar contentions including the ratio laid down by various Courts as relied upon by the assessee has been duly dealt by the Hon'ble Court and decided the matter in the favour of revenue. Section 14A clearly stipulates as under: [Expenditure inclined in relation to income not includible in total income. 14A. [(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m part of the total income of the assessee- company. vii. In view of the above, the provisions of section 14A r.w.r. 8D is clearly applicable in the assessee s case. Accordingly, disallowance u/s 14A r.w.r. 8D is worked as under: (i) The amount of expenditure directly relating to income which does not form part of total income; 0 (ii) In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely A X B/C - Where (A) Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; 43019854 2640992 (B) The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/mutual fund therefore no disallowance was required to be made. It is noticed that the assessee was having huge interest free fund in the form and share capital and reserves funds to the amount of ₹ 174.74 crores whereas the investment was made to the amount of ₹ 18.90 crores only. It is also noticed that assessee has claimed exempt dividend income to the amount of ₹ 13,951/- only during the year under consideration. The assessing officer has made addition to the amount of ₹ 52,23,911/- which was much more than exempt income earned by the assessee during the year consideration. However, the ld. CIT(A) has deleted the proportionate interest disallowance made by the assessing officer to the amount of ₹ 44,68,770/- and confirmed the addition to the amount of ₹ 7,55,141/- by referring amount to be disallowed for administrative expenses. We have also considered that Co-ordinate Bench of the ITAT Ahmedabad in the case of Jivraj Tea Ltd. vs. DCIT ITA No. 886/Ahd/2012 order dated 28th August, 2014 related to assessment year 2008-09 restricting the disallowance to the extent of exempt After perusal of the facts, we are of the view that disallowance in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) which is not permissible and therefore, bad in law. Thus the same is liable to be quashed. Hence, we delete such addition made by the Learned CIT(A). The assessee s appeal is thus allowed. 6. Ground No.2: Upon verification of details filed by the assessee during the course of assessment proceeding, it was seen that the assessee debited an amount of ₹ 21,04,633/- being interest paid on short term funds and interest on others. It was further observed that it has given interest free advances to the parties. By and under a show-cause dated 29.02.2016, the assessee was asked to explain as to why proportionate interest should not disallowed. The explanation rendered by the assessee was not found suitable and the Learned AO, therefore, disallowed of ₹ 5,02,548/- out of interest on the ground that the appellant had given interest free advances totaling to ₹ 41,87,900/- to three parties on which no interest was charged. Such disallowance was made upon calculation of interest @12%. The Learned CIT(A), however, deleted the same relying upon the order passed by his predecessor in assessee s own case for A.Y. 2011-12 and 2012-13. At the very outset of proceeding, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est bearing fund to interest free advances to others. The expenditure u/s. 36(1))(Hi) of the Act is allowable if the borrowed fund are utilized for the purpose of business. The assessee has not utilized the interest bearing fund for its business purpose but advanced the same as interest free. In view of the above, proportionate @12%on advance of ₹ 22,87,9007- which works out to ₹ 2,74,548/- is disallowed u/s. 36(1) (Hi) of the I. T. Act, treating the same is not incurred wholly and exclusively for the purpose of business. The appellant has submitted that Assessing Officer has failed to appreciate that the advances were given in the ordinary course of business and the same were not in the nature of any loan. Therefore, the appellant cannot be expected to charge interest which is not receivable. It was not a case where any interest free advance was given to any related party, here out of the business compulsion the advance was given and it was not possible for the company to charge interest on it. It is submitted that the funds borrowed by the appellant company have been used by it in its business only and hence the interest expenditure incurred for such borrowings w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeals fails and accordingly dismissed. 8. Ground No.3 : This ground of appeal relates to the order passed by the Learned CIT(A) in deleting disallowance u/s 80IA of the Act to the tune of ₹ 6,15,58,478/-. 9. Upon verification of the computation of income, it was found that the assessee has claimed deduction of ₹ 6,15,58,478/- u/s 80IA of the Act, 1961. It was further found that the assessee has shown activity of Power Generation and the total value of Machinery and Plant used for the said activity shown at ₹ 766.44 lacs. According to the Learned AO, the assessee claimed deduction u/s 80IA of the Act on a much higher amount than its claim of deduction u/s 80IA of the Act as compared to earlier years, and ultimately finalized the issue by making addition of the entire amount of ₹ 6,15,58,478/- u/s 80IA of the Act. In appeal, the same was deleted by the Learned CIT(A) relying on the decision made by his predecessor in assessee s appeal for A.Y. 2012-13. Hence, the instant appeal before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld like to submit the definition of amalgamation , tax concessions available to amalgamated company and other provisions, for your honours kind perusal as under: A. Definition of amalgamation : According to section 2(1B) of the Income-tax Act, 1961 (hereinafter referred to as the Act), amalgamation in relation to companies means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that:- a. All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation. b. All the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of amalgamation. Shareholders holding not less than 3/4th in value of the shares in amalgamating company or companies (other than shares held there is immediate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances that the assessing officer has disallowed the claim of the assessee on presumption basis that addition of ₹ 71,12,34,167- was old plant and machinery without bringing on record evidence to substantiate that specified machinery was purchased by Shanti processor Ltd and the assessing officer has also failed to disproved the material fact that similar claim was allowed to the assessee in the assessment year 2009-10 on fulfilling of all the conditions. In the light of the above facts, legal findings and elaborated findings of the Ld.CIT(A) as supra in this order we do not find any error in the decision of the Ld.CIT(A),therefore the appeal of the revenue is dismissed. Respectfully relying upon the judgment passed by the Hon ble Coordinate Bench, we find no infirmity in the order impugned passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeal fails and accordingly dismissed. 12. In the result, revenue s appeal is partly allowed. This Order pronounced in Open Court on 06/06/2019 - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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